Parliament on Monday passed amendments to the Finance Act, with the introduction of a monetary threshold of Rs 15 lakh for taxing non-resident Indians (NRIs), an equalisation levy for e-commerce operators, increased TDS compliance for cash withdrawals by those who haven’t filed income tax returns for three years, and a lower rate of tax collected at source (TCS) for remitting education loan money overseas as some of the amendments introduced.
The amendments introduced a Rs 15 lakh threshold for taxing NRIs’ Indian income if the person qualified as a deemed resident by staying in India for 120 days or more as against no monetary limit earlier in the Budget.
“The liability to pay tax on such deemed resident will be only in respect of business controlled in India or profession set up in India, and that too when such income exceeds the threshold of say Rs 15 lakh. Further, such persons have been categorised as ‘not ordinarily resident’ if they reside in India for 120 days or more but less than 182 days,” Rakesh Nangia, chairman of Nangia Andersen Consulting, said.
The government also expanded the ambit of the equalisation levy for non-resident e-commerce operators involved in supply of services, including online sale of goods and provision of services, with the levy at the rate of 2 per cent. Equalisation levy at 6 per cent has been in force since 2016 on payment exceeding Rs 1 lakh a year to a non-resident service provider for online advertisements.
The amendments also lowered TCS rate to 0.5 per cent from 5 per cent for transfer of money overseas through Liberalised Remittance Scheme (LRS) if the fund is borrowed from banks and specified institutions to fund education.
The government has introduced compliance layers on cash withdrawal over Rs 1 crore by specifying that a person who has not filed income tax return for three 3 preceding years would be liable for a 2 per cent TDS on cash withdrawal for Rs 20 to Rs1 crore, and 5 per cent in the amount exceeds Rs 1 crore.
In another significant change, the government has withdrawn 0.1 per cent TCS from being applicable to exporters, which was proposed as an anti-evasion measure on sale of goods over Rs 50 lakh in a year and 1 per cent if the seller does not have PAN or Aadhaar.
“Exempting exports from TCS is a big relief to exporters and extension of TCS deadline to October 1, 2020 will give a breather to taxpayers to build up their IT systems,” Samir Kanabar, Tax Partner, EY India, said.
Also, the government extended the tax exemption given to sovereign wealth funds to global pension funds as well. In the Union Budget 2020-21, the government had announced a 100 per cent tax exemption on long-term capital gains, dividend and interest on investment into infrastructure made by sovereign wealth funds (SWFs). This was applicable for investments made on or before March 2024, and held on for a minimum period of three years.
While sovereign wealth funds were given this exemption, global pension funds – which are also an important source of money – were left out. The changes in the Finance Bill make it attractive for pension funds as well to pursue long term investments in the infrastructure sector in India.